Priorities for the Japanese Economy in 2014 (January 2014)

Take Your Holiday and Have a Nice Trip in 2014: Improving productivity with omotenashi

Senior Fellow, RIETI

Increasing the number of domestic tourists in Japan

The number of foreign tourists to Japan in 2013 topped 10 million shortly before the end of the year, setting a record number and achieving the first goal in tourism promotion set in the Japan Revitalization Strategy adopted by a Cabinet decision in June 2013. The 2020 Tokyo Summer Olympics will be a tail wind. However, in order to achieve the second goal of increasing the annual number of inbound travelers to more than 30 million in 2030 and turn Japan into a leading tourist destination in the world, the overall environment surrounding tourism must be enhanced and the Japanese tourism industry, as the primary host for a growing number of tourists from abroad, needs to develop further by making necessary investments.

Foreign nationals accounted for only 6% of the total number of overnight stays in 2012 (JTA 2013a), and their destinations are concentrated in Tokyo and a few other prefectures (Note 1). Meanwhile, the number of overnight stays by Japanese tourists shows that domestic tourism has yet to come out of its slump (Note 2). Given the time constraints that foreign tourists face in visiting remote and not easily accessible areas, it is crucial to increase the number of domestic tourists to build the foundation for the development of the tourism industry.

Improving productivity with omotenashi

Many of those who have lived or traveled abroad might have realized that Japan is No. 1 in the quality of various services. Just to name a few of the high quality services in Japan, parcel deliverymen and repair servicemen are polite and punctual, and we can buy just about anything at any time at a convenience store that is open around the clock. Also, we often read about or watch foreign tourists' praising of the polite services they received in Japan. Indeed, omotenashi, the spirit of hospitality, is something of which we can be proud.

However, the productivity of Japan's service industry as a whole remains low compared to those of the United States and Europe. In particular, the total factor productivity (TFP) of the restaurant and accommodation industries is 51.0% of that of the United States in 2009 (METI 2013) (Note 3). In order to further refine the quality of omotenashi and continue to provide hospitality services as a viable business, enhancing the productivity of the tourism industry is of vital importance.

The enhancement of productivity involves various efforts both on the supply and demand sides. A major challenge faced by the tourism industry on the demand side is how to smooth out demand by reducing the gaps between on-season periods—such as the year-end and New Year holidays and the Golden Week holiday in late April through early May—and off-season periods, or how to increase the number of off-season tourists.

Smoothing out demand to raise the percentage of paid holidays taken to an internationally comparable level

A public opinion survey (Cabinet Office 2013) found that "recreation and leisure activities" topped the list of aspects of life that people would like to focus on going forward. According to the White Paper of Leisure 2013 (JPC 2013), potential demand—measured as the percentage of respondents interested in a specific leisure activity minus the percentage of those who actually participated in the activity—was 33.7% for overseas travel, 19.6% for domestic travel, and 16.0% for cruise travel. These findings point to the presence of significant potential demand for overseas and domestic travel, and the likelihood that demand for off-season travel would increase if Japanese people take more holidays.

However, the percentage of paid holidays taken by Japanese workers peaked out at 56.1% in 1993. Although it followed an upward trend in the past few years, the percentage dropped again from 49.3% in 2011 to 47.1% in 2012. A comparison across industries shows that those working in the accommodation and restaurant industries took only 29.8% of their paid holidays (MHLW 2013 and JPC 2013) (Note 4). Indeed, Japan stands out in international comparison, with British, French, and German people taking nearly 100% of paid holidays available, and Americans taking 70% to 80% (JTA 2010). A survey conducted by Expedia, the world's leading online travel booking site, found that Japan is the most "vacation-deprived" nation in the world (Note 5).

The government has set a target of increasing the percentage of paid holidays taken to 70% by 2020 (Note 6), and, in line with this, concerned ministries and agencies have been undertaking a promotional campaign dubbed "Positive Off" to cultivate a positive attitude toward taking holidays. At the moment, however, the numerical target seems to be far out of reach. The Japan Revitalization Strategy states that "each and every person must be able to feel a sense of fulfillment" as a fruit of all of these efforts. With Abenomics beginning to deliver its fruits, now is the time to distribute them among the people not only by raising wages but also in the form of paid holidays.

Promoting the taking of paid holidays involves changing the mindset of the entire Japanese society and the implementation of well-designed and effective across-the-board business management in respective organizations. This has much in common with the development of an environment that embraces work-life balance, one in which people can pursue their careers and raise children. As such, the promotion of holiday taking is conducive to the realization of the Japan Revitalization Strategy that calls for promoting women's participation as one of its key policies. A greater number of paid holidays taken are expected to have significant ripple effects on the economy and help generate jobs (Note 7), while those who have taken holidays will return to work refreshed, which would be another positive impact (Note 8).

In France, where I once lived, schools are closed for two weeks for the so-called ski holiday in February through March (holiday periods are staggered by dividing the country into three zones). At the workplace, it is almost like a yearly event during this period to take a family ski trip to a resort in the Alps or such is the atmosphere as I perceived it. The Japan Travel Agency (JTA) studied the possibility of introducing a staggered holiday system some years ago. Although discussion on this particular idea was suspended subsequently, it is hoped that vigorous efforts will be undertaken to consider ways to promote the taking of paid holidays.

Efforts needed on the side of the tourism industry to utilize IT and capture customers' needs

Needless to say, supply-side efforts by those in the tourism business are crucial to turning the potential demand into actual demand and thereby improving the overall productivity of Japan's tourism industry. In reality, however, more than half of hotels and lodging establishments in Japan have never sought external advice on business management such as facility investments and customer attractions (JTA 2013b), indicating that ample room remains for improvement.

A comparison of information technology (IT) user industries in Japan and the United States shows that Japanese companies lag significantly behind their U.S. counterparts in the utilization of IT for their business operations (Note 9), pointing to a pressing need for Japanese companies to make a more vigorous use of IT to improve productivity. While the Internet is becoming increasingly important as a means of disseminating tourism information, it would be necessary to have some sort of system in place to provide objective information on accommodation facilities and so forth so as to enable customers to make appropriate judgment amid the flood of information.

What is most important is to capture and analyze the diverse and changing needs of customers and provide truly needed services effectively. In order to do so, those on the side of providing services must seek to evolve their business from broad perspectives, learning from successful efforts in other regions or becoming customers themselves. In Hokkaido, Australians have turned Niseko, primarily known as a ski resort, into a year-round resort by introducing white water rafting as a summer attraction. In the Travelers' Choice ranking published by TripAdvisor, the world's leading word-of-mouth communication site for travel tips, Jigokudani Monkey Park in Nagano prefecture was selected as the fifth most popular destination in Japan among foreign tourists in 2012 (following Miyajima in Hiroshima prefecture but coming before Kenrokuen Garden in Kanazawa, Ishikawa prefecture, which ranked fourth and sixth, respectively) (Note 10). The rare view of wild monkeys dipping in a hot spring in the snow proved extremely popular among foreign tourists. My personal wish is to see a greater number of pet-friendly hotels. Putting that aside, I believe that there exist enormous potential in the unmet needs of tourists both from within Japan and abroad. The Japanese tourism industry needs to make vigorous efforts to actively capture and fulfill those needs.

January 9, 2014
  1. ^ In 2012, the top three destinations of Tokyo, Hokkaido, and Osaka accounted for one-fourth of the total number of overnight stays including both Japanese and foreign nationals. Meanwhile, in terms of the number of overnight stays by foreign nationals, Tokyo topped the list, followed by Osaka, Kyoto, Hokkaido, and Chiba, with the top three accounting for more than half of the total number.
  2. ^ The number of overnight stays by domestic tourists has been on a declining trend since 2006. Domestic tourists spent an average of 2.24 nights per person (preliminary) in tourist accommodation in 2012, slightly up from 2.08 nights in 2011 but far below 2.74 nights in 2006 (see JTA 2013b).
  3. ^ This finding should be interpreted with caution as differences in the quality of services are not fully reflected in TFP figures.
  4. ^ The surveys were conducted either in the calendar year or the fiscal year that ended in March of that year.
  5. ^ The survey was conducted from August 2013 to September 2013 on people with jobs (including both employed and self-employed) in 24 countries around the world regarding the extent to which they take paid holidays. (in Japanese) See also "Expedia's 2013 Vacation Deprivation Study Reveals Stark Global Disparity in Work-Life Balance," Expedia Press Release dated November 18, 2013 at:
  6. ^ Council of Executives of Public and Private Sectors to Promote Work-Life Balance, "Action Policy for Promoting Work-Life Balance," June 2010 (in Japanese)
  7. ^ One estimate has it that should Japanese people take all of their paid holidays available, Japan's economy would be boosted by 16 trillion yen (roughly equivalent to 3% of Japan's GDP), and 1.88 million jobs would be created. See Regional Tourism Management Forum (2009).
  8. ^ According to the aforementioned Expedia survey, Japan and South Korea, which were the first and second most vacation-deprived, also ranked the first and second worst in terms of job satisfaction.
  9. ^ The real value of information technology (IT) assets in Japan, measured as a percentage of added value, was no different from that of the United States until the mid-1990s. However, IT assets in the United States have since increased rapidly, resulting in a significant gap between the two countries (33.8% in the United States compared to 16.3% in Japan IT in 2006). See METI (2013).
  10. ^ (in Japanese)
  • Tanaka, Ayumu, (2013), "Geographic Concentration of Foreign Visitors to Japan," RIETI Discussion Paper 13-E-008
  • Regional Tourism Management Forum (2009), "Kanko Chiiki Keiei Forum Kyuka Kaikaku Suishin Bukai Hokokusho [A Report by the Holiday Reform Subcommittee of the Regional Tourism Management Forum]" (Only in Japanese)
  • Japan Travel Agency (JTA) (2010), Reference materials presented at the second meeting of the government's working team on a staggered holiday system (Only in Japanese)
  • JTA (2013a), "Accommodation Survey, January – December 2012," published in June 2013 (Only in Japanese)
  • JTA (2013b), "White Paper on Tourism in Japan, 2013" (Full text available only in Japanese; summary available in English)
  • Ministry of Health, Labour and Welfare (MHLW) (2013), "General Survey on Working Conditions 2013," (Only in Japanese)
  • Ministry of Economy, Trade and Industry (METI) (2013), "White Paper on International Economy and Trade 2013," (Full text available only in Japanese; outline available in English)
  • Cabinet Office (2013), "Public Opinion Survey on the Life of the People," June 2013 (Only in Japanese)
  • Japan Productivity Center (JPC) (2013), "White Paper of Leisure 2013," (Full text available only in Japanese; news release available in English)

January 24, 2014

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